Cyprus bank chairman resigns as bailout woes grow (via AFP)
The fact that millions of jobs have been moved offshore is the reason why the most expansionary monetary and fiscal policies in US history have had no success in reducing the unemployment rate. In post-World War II 20th century recessions, laid-off workers were called back to work as expansionary monetary and fiscal policies stimulated consumer demand. However, 21st century unemployment is different. The jobs have been moved abroad and no longer exist. Therefore, workers cannot be called back to factories and to professional service jobs that have been moved abroad.The economies of the United States and Western Europe are in decline because they now produce little that can be exported and most of what we consume is imported. An economy that doesn't turn raw materials into something more valuable is not sustainable.
Economists have failed to recognize the threat that jobs offshoring poses to economies and to economic theory itself, because economists confuse offshoring with free trade, which they believe is mutually beneficial. I will show that offshoring is the antithesis of free trade and that the doctrine of free trade itself is found to be incorrect by the latest work in trade theory. Indeed, as we reach toward a new economics, cherished assumptions and comforting theoretical conclusions will be shown to be erroneous.
This book is organized into three sections. The first section explains successes and failures of economic theory and the erosion of the efficacy of economic policy by globalism. Globalism and financial concentration have destroyed the justifications of market capitalism. Corporations that have become “too big to fail” are sustained by public subsidies, thus destroying capitalism’s claim to be an efficient allocator of resources. Profits no longer are a measure of social welfare when they are obtained by creating unemployment and declining living standards in the home country.There is not a lot in the book but Dr Roberts puts it all together in a concise if shrill way. He explains what could be done to turn it around but then says it won't be because Wall Street and the large financial institutions have captured the government - we have essentially become an Oligarchy. Much of his discussion of the financial system comes from Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History by Matt Taibbi.
The second section documents how jobs offshoring or globalism and financial deregulation wrecked the US economy, producing high rates of unemployment, poverty and a distribution of income and wealth extremely skewed toward a tiny minority at the top. These severe problems cannot be corrected within a system of globalism.
The third section addresses the European debt crisis and how it is being used both to subvert national sovereignty and to protect bankers from losses by imposing austerity and bailout costs on citizens of the member countries of the European Union.
Economists do a poor job of adjusting economic theory to developments brought by the passage of time. Just as capital theory originated prior to the income tax and free-trade theory originated at a period in history when capital was internationally immobile and tradable goods were based on climate and knowledge differences, economists’ neglect of the ecosystem as a finite, entropic, non-growing and materially closed system dates from an earlier “empty world.” In an empty world, man-made capital is scarce and nature’s capital is plentiful. In an empty world, the fish catch is limited by the number of fishing boats, not by the remaining fish population, and petroleum energy is limited by drilling capability, not by geological deposits. Empty-world economics focuses on the sustainability of man-made capital, not on natural capital. Natural capital is treated as a free good. Using it up is not treated as a cost but as an increase in output. Economic theory is based on “empty-world” economics. But, in fact, today the world is full.
In a “full world,” the fish catch is limited by the remaining population of fish, not by the number of fishing boats, which are man-made capital in excess supply. Oil energy is limited by geological deposits, not by the drilling and pumping capacity of man-made capital. In national income accounting, the use of man-made capital is depreciated, but the use of nature’s capital has no cost other than extraction cost. Therefore, the using up of natural capital always results in economic growth.
A look at what Republicans oppose:Of course the bloated Defense budget is off the table. This is a sign of American exceptionalism - an exceptionally broken country.
- By 47-37, letting the Obama payroll tax cut expire.
- By 68-26, cutting spending for Medicare.
- By 61-33, cutting spending for Medicaid.
- By 66-28, eliminating the tax deduction for home mortgage interest.
- By 72-25, eliminating the charitable tax deduction.
- By 56-44, raising the Medicare eligibility age from 65 to 67.
Republicans don't favor much in any potential deal — they also, of course, are opposed to allowing the Bush tax cuts to expire on any income bracket. Pollster Lee M. Miringoff warns that they might be unhappy with whatever happens.
“There’s no clear statement of what Republican voters want to happen. There’s opposition to everything,” Miringoff said.
Timothy Geithner, John Boehner edge toward the 'fiscal cliff' (via The Christian Science Monitor)
Here’s something that happened in this election that has been largely overlooked but I think is a very big deal indeed. Trickle-down economics died last Tuesday. The post-election chatter has been dominated by demographics, Latinos, women, and the culture war. But economics played a strong and even pivotal role in this election too, and Reaganomics came out a huge loser, while the Democrats have started to wrap their arms around a simple, winning alternative: the idea that government must invest in the middle class and not the rich. It’s middle-out economics instead of trickle-down, and it won last week and will keep on winning.My only question is why did it take so long? It always defied logic and many of not most of the people pushing it knew it was absurd but also knew it was a great scam for taking from the middle and giving it to the rich. Business does not hire people because they get tax breaks the hire people when there is demand for their goods and services. A healthy economy depends on a healthy middle class - it's not trickle-down but middle-out economics.
Supply side was rejected. And in its place, voters went for an economic vision that says: don’t invest in the wealthy in the hope that they’ll decide to spread the wealth around; invest in the middle class, because it’s demand from a prosperous middle class that ultimately creates more jobs, and because doing that makes for a healthier society all the way around. Obama embraced this message late last year in his speech in Kansas, and even though I wouldn’t say he pressed it consistently for a whole year, he certainly emphasized it in the second debate and spoke regularly about it toward the end. “I believe you grow the economy from the middle out,” he said in a key October ad.Obama in his second term has the opportunity to kill trickle-down once and for all but it won't be an easy fight. But it is the only way to save this economy.
He did not originate the phrase. Writing in The New York Times in July, Nick Hanauer and Eric Liu, authors of The Gardens of Democracy, wrote: “Lasting growth doesn’t trickle down; it emerges from the middle out.”
A whole cohort of progressive economists and activists has been at work on middle-class economics since 2009. Robert Reich has been there, as have Hanauer and Liu and the Center for American Progress, especially Heather Boushey and David Madland. I’m proud to add that the journal I edit, Democracy, has been in on this crusade too. Hanauer and Liu are advisers to the journal, and in our Spring 2011 issue Madland wrote the first long piece to appear on middle-class economics.
America's middle class: An endangered species? (via GlobalPost)
Plutocracy Rising: Moyers, Freeland, and Taibbi (via Market Shadows)
IMF meeting heralds shift away from austerity (via AFP)
One of the more persistent economic ideas rattling through the intelligentsia is that the last 250 years of amazing innovation, productivity and growth —from the steam-engine birth of the first industrial revolution in the 1700s to last month’s launch of the iPhone 5 — have come to an end. The nations of the developed world, especially the United States, have seen their best centuries. Growth has peaked. The future is flatlined.
Serious economists are throwing their good names behind this speculative idea, the latest being Robert J. Gordon, at Northwestern University. In a U.S. National Bureau of Economic Research working paper, Prof. Gordon raises the possibility that the last 250 years “could well turn out to be a unique episode in human history.” The opening words of the paper’s title are designed to provoke: “Is U.S. Economic Growth Over?”
Another economist who has been trumpeting a long-term decline in U.S. growth is John Ross, Visiting Professor at Antai College of Economics and Management, Jiao Tong University, Shanghai. He sees a “long-term deceleration” in U.S. economic performance, a trend he pins in part on the failure of “Reaganite/neo-Liberal policies.”I think there is something to this. The so called supply side/ trickle down economics has only succeeded in a trickle up of the wealth. The lower 95% of the population has less and less disposable income and an economy can't grow without consumers.
In Prof. Ross’s view, this entrenched decline in growth rates should be the dominant focus of current economic analysis and forecasting. It is folly, in this context, to constantly view quarterly U.S. growth data as “disappointing” when in fact the much-lamented slow growth of GDP they may be the new normal. “Analysts are surprised by the new data only when they have no internalized or built into their models this long term deceleration of the U.S. economy.”
WALLACE: So how much would it cost?He not only doesn't have the time he doesn't have the math. They can't explain it until after the election because it can't be revenue neutral without raising taxes on the middle class.
RYAN: It’s revenue neutral…
WALLACE: No no, I’m just talking about cuts. We’ll get to the deductions, but the cut in tax rates.
RYAN: The cut in tax rates is lowering all Americans’ tax rates by 20 percent.
WALLACE: Right, how much does that cost?
RYAN: It’s revenue neutral.
[...]
WALLACE: But I have to point out, you haven’t given me the math.
Ryan: No, but you…well, I don’t have the time. It would take me too long to go through all of the math. But let me say it this way: you can lower tax rates by 20 percent across the board by closing loopholes and still have preferences for the middle class. For things like charitable deductions, for home purchases, for health care. So what we’re saying is, people are going to get lower tax rates.
I sometimes hear businessmen blame high levels of joblessness on "skill-mismatch" whereby available workers just don't have the know-how to do the jobs that are available.He gives the example skilled baristas. In the DC area the unemployment rate is 5.5% and employers are required to train them and they do. On the other side of the coin is Portland where the unemployment rate is 8.3% and there are plenty of skilled baristas so employers don't train.
The fact remained that with the exception of Citi, the commercial banks' capital levels seemed to be adequate. The investment banks were in trouble, but Merrill had arranged to sell itself to BofA, and Goldman and Morgan had been able to raise new capital from private sources, with the capacity, I believed, to raise more if necessary. Without government aid, some of them might have had to forgo bonuses and take losses for several quarters, but still, it seemed to me that they were strong enough to bumble through. Citi probably did need that kind of massive government assistance (indeed, it would need two more bailouts later on), but there was the rub. How much of the decision-making was being driven through the prism of the special needs of that one, politically connected institution? Were we throwing trillions of dollars at all the banks to camouflage its problems? Were the others really in danger of failing? Or were we just softening the damage to their bottom lines through cheap capital and debt guarantees?Like so many other things that go down in Washington TARP was nothing more than politicians and technocrats trying to look like they were doing something. If the banks collapsed they would get the blame. And there was this:
Thain, whose bank was desperate for capital, was worried about restrictions on executive compensation. I couldn't believe it. Where were the guy's priorities?Thain was head of Merrill Lynch which was at the edge of the cliff and about to fall.
The system did not fall apart, so at least we were successful in that, but at what cost? We used up resources and political capital that could have been spent on other programs to help more Main Street Americans. And then there was the horrible reputational damage to the financial industry itself. It worked, but could it have been handled differently? That is the question that plagues me to this day.Of course the real danger is the Too Big To Fail institutions are even bigger and still gambling.
Matt Yglesias correctly points out that the Obama administration and the Democrats don't have to be held hostage when the rise in the debt ceiling comes up and he has a plan.
This isn’t a sudden “shutdown.” Nor is is true that we have to default on obligations to our bondholders. Rather, it means that government outlays are now limited by the quantity of inbound tax revenue. But for a while, the people administering the federal government (to wit Barack Obama and Timothy Geithner) will be able to selectively stiff people. So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich.
Of course this won't happen - because they really don't want to. Obama and the Democrats are owned by the same people that own the Republicans. We on the the progresive side used to say the Clinton was the best Republican president since Eisenhower. Well Obama has accepted the imperial presidency of George W. Bush which as I see it makes him the best Republican president since George H.W. Bush. While Clinton was to the right of Eisenhower Obama is to the right of Bush 41. He is owned by Wall Street and the military industrial complex. The most important paragraph in Elizabeth Gould and Paul Fitzgerald's Crossing Zero is this:
By late 2009 it was clearer than ever that both Congress and the State Department had come to rely on the American military to set the policy agenda. In fact, it appeared that it might even be impossible for Washington to return to a civilian-orchestrated strategy of nation-building anywhere, after thirty years of militarily enforced privatized foreign policy schemes. An entire industry now existed to lobby against any efforts to reverse the trend, change the status quo or even to make private contractors accountable for the taxpayer money they received. A book by Allison Stanger, One Nation Under Contract, outlined the dimensions of a problem where the private sector had become a "shadow government" operating outside the law with billions of federal dollars, but little to no accountability for how or where the money was spent.
It's impossible for congress to reduce military spending because they depend on money from defense contractors get reelected - the best government money can buy. Of course the same thing can be said for the too powerful to fail banks. The plutocrats are in the drivers seat. If the Tea Party figures that out they may prove to be our salvation.
Nearly 60% of Americans are in favor of a government shutdown to reduce spending, but of course Americans are painfully ignorant of where the money in the budget goes. As I noted here the Tea Party wants to cut the budget but they really don't want to cut anything that really matters. What they do want to cut are some rather insignificant budget items they don't like. The current budget fight is not about balancing the budget, it is tribal warfare. There is little or no talk of cutting military spending, the Republican base likes bombing brown people and Muslims and the Military Industrial Complex would not stand for it. There is little or no talk of cutting Medicare, many of the Tea Partiers are on Medicare and the Medical Industrial Complex depends on Medicare for much of it's revenue.
The Republican party is the party of corporate America and corporate America does not like regulations that make the water and air clean - so they are on the chopping block. And then there is the war on the truth - the measly five billion dollars a year NPR receives is a target. The truth is not a friend of conservatives. Planned Parenthood equals abortion to the base which puts it in the cross hairs. When you look at the budget these programs represent a few grains of sand in a large bucket.
1. Slash Medicare and defense spending
2. Raise taxes
It’s one thing for a good presidential candidate to embrace a bad idea. It’s worse when the candidate knows it’s a bad idea. It’s worse still when the candidate attacks her rival for failing to embrace a bad idea. And it’s the worst when the candidate feels so strongly about the bad idea that she starts running television commercials about it.Of course he's talking about Hillary Clinton and her support of John McCain's incredibly stupid gas tax holiday. Now we know it's stupid because Fred Barnes thinks it's a good idea. It's so stupid that even Thomas Friedman thinks it's stupid and He's rarely right about anything. Jonathan Alter calls it what it is:
Hillary Clinton has now joined John McCain in proposing the most irresponsible policy idea of the year—an idea that actually could aid the terrorists. What's worse, both of them know that suspending the federal gas tax this summer is a terrible pander, and yet they're pushing it anyway for crass political advantage.So why is it so stupid? Alter explains:
Clinton and McCain have learned a destructive lesson from the Bush era: as Bill Clinton said in 2002, it's better politically to be "strong and wrong" than thoughtful and right. The goal is to depict Barack Obama as an out-of-touch elitist. By any means necessary.
I could highlight a long debate among economists on suspending the gas tax, but there is no debate. Not one respectable economist—and not one environmentalist or foreign policy expert—supports the idea, unless they are official members of the Clinton or McCain campaigns (and even some of them privately oppose it). To relieve suffering at the pump, send another rebate check or provide tax credits or something else, but not this.
* It's a direct transfer of money from motorists to oil companies, which are getting ready this week to again report record obscene profits. If the federal excise tax were lifted, oil companies would simply raise prices and pocket most of the difference. Clinton's proposal to recover the money with a windfall profits tax on oil companies sounds nice but won't happen. That tax was easily blocked by the Senate in December and would likely be blocked again.What I have heard few talk about are the reasons behind the sky rocketing fuel prices. Of course we have reached peak oil which I first discussed here almost four years ago. But that doesn't explain why the US is being hurt much more than Canada, Europe, Australia and New Zealand. The reality is that oil costs a lot more dollars because the dollar buys a lot less. A majority of Americans now realize that the occupation of Iraq is responsible for much of our economic woes. That includes the price Americans pay for gasoline. The occupation of Iraq costs about three billion dollars a week. That money is all being borrowed driving up the national debt and driving down the value of the dollar. Now an gas tax holiday won't increase the supply of oil and if anything will decrease the value of the dollar driving up prices even more.
* It offers taxpayers only peanuts. The Congressional Budget Office says the average savings to motorists this summer would be a total of $30. Did I miss something, or was that measly number somehow not included in Clinton's explanation of her support?
* It sends more hard-earned money to the Middle East, which is terrible for our national security. Remember, 15 of the 19 terrorists on 9/11 came from Saudi Arabia. How did they get the terrorist training? The madrassa indoctrination? Oil money.
* It worsens global warming by encouraging gasoline consumption. When you flee your house in 2020 because of flooding, remember which politicians pandered.
* It makes it more likely you'll have a car accident or will waste even more time in traffic. The proceeds from the gas tax go for highway construction and upgrades. Because the tax (24.4 cents a gallon on diesel fuel) was last raised 15 years ago, our infrastructure is a mess, with potholes and dangerous crossings practically everywhere. Thousands of repair projects will be further delayed.
* It will cost 300,000 construction jobs, according to the Department of Transportation. Makes it kind of ironic when Clinton starts her rallies saying she wants "jobs, jobs, jobs."
* It will cost the U.S. Treasury at least $8.5 billion and probably much more, according to state highway officials. For McCain that's no money at all—merely one month in Iraq. For Clinton it's money she's already spent. She has said in the past that any proceeds from a windfall profits tax would go for renewable energy. The $8.5 billion figure assumes the tax would be reapplied after Labor Day. Fat chance. The one-year costs are probably closer to $30 billion.
* It won't happen anyway because Congress isn't usually quite that stupid, and if it is, President Bush would veto the bill.
The US government has redesigned the five dollar bill to make it more difficult to counterfeit. The question is why would anyone bother. After seven plus years of Bush administration mismanagement the five dollar bill is not worth the fancy new paper it's printed on.SAO PAULO, Brazil - Antique store owners in lower Manhattan, ticket vendors at India's Taj Mahal and Brazilian business executives heading to China all have one thing in common these days: They don't want U.S. dollars.The dollar is at the top of the list of things the Bush administration has destroyed.
Hit by a free fall with no end in sight, the once mighty U.S. dollar is no longer just crashing on currency markets and making life more expensive for American tourists and business people abroad; its clout is evaporating worldwide as foreign businesses and individuals turn to other currencies.
Experts say the bleak U.S. economic forecast means it will take years for the greenback to recover its value and prestige.
Negative dollar sentiment is growing in nations where the dollar was historically accepted as equal or better than local currency — and dollar aversion is even extending to some quarters in the United States.
At the Taj Mahal, dollars were always legal tender, alongside rupees, for entry into the palace. But because of the falling value of the dollar, the government implemented a rupees-only policy a month ago. Indian merchants catering to tourists have also turned bearish on the dollar.
"Gone are the days when we used to run after dollars, holding onto them for rainy days," said Vijay Narain, a tour operator in the city of Agra where the Taj Mahal is located. "Now we prefer the euro. It gives us more riches."
In Bolivia, billboards feature George Washington's image on a $1 bill alongside a bright pink 500 euro note, encouraging savers to turn to the euro to tuck away money earned abroad or sent home in remittances.
"If the dollar's going down ... save it in Euros!!!" say the signs popping up around La Paz for Bolivia's Banco Bisa.
It begins to sound a bit naughty -- all this talk about the need to "stimulate" the economy, as if we were discussing how to make a porn film. I don't mean to trivialize our economic difficulties or the need for effective government intervention, but we have to face a disconcerting fact: For years now, that strange stimulus-crazed beast, the economy, has been going its own way, increasingly disconnected from the toils and troubles of ordinary Americans.Please note the key words here, disconnected and decoupled. The boom was felt on Wall Street but not on Main Street.
The economy, for example, has been expanding, at least until now, and growth is supposed to guarantee general well-being. As long as the gross domestic product grows, World Money Watch's Web site assures us, "so will business, jobs and personal income."
But hellooo, we've had brisk growth for the past few years, as the president has tirelessly reminded us, only without those promised increases in personal income, at least not for the poor and the middle class. According to a study just released by the Economic Policy Institute, real wages actually fell last year. Growth, some of the economists are conceding in perplexity, has been "decoupled" from widely shared prosperity.
I first began to sense this in the boom years of the late 1990s, when I was working in entry-level jobs for my book "Nickel and Dimed." While the stock market soared and fortunes were being made in the time it takes to say "IPO," my $6-to-$8-an-hour co-workers lunched on hot dog buns because that was all they could afford and, in some cases, fretted about whether they could find a safe place to sleep.And about that productivity:
Growth is not the only economic indicator that has let us down. In the past five years, America's briskly rising productivity has been the envy of much of the world. But again, there's been no corresponding increase in most people's wages. It's not supposed to be this way, of course. Economists have long believed that some sort of occult process would intervene and adjust wages upward as people worked harder and more efficiently.Productivity gains have been made on the backs of the average Americans who have been working more for less or seen their jobs outsourced. It was never a recovery for them but it seemed like it for awhile because of cheap easy credit. But a recovery based almost entirely on debt cannot be sustained. I'll once again refer to Eric Englund's piece from 2005.
We like to attribute our high productivity to technological advances and better education. But a revealing 2001 study by the consulting firm McKinsey & Co. also credited America's productivity growth to "managerial . . . innovations" and cited Wal-Mart as a model performer, meaning that our productivity also relies on fiendish schemes to extract more work for less pay. Yes, you can generate more output per apparent hour of work by falsifying time records, speeding up assembly lines, doubling workloads and cutting back on breaks. That may look good from the top, but at the middle and the bottom, it can feel a lot like pain.
As Murray Rothbard explains, in The Austrian Theory of the Trade Cycle, America’s debt-driven "prosperity" is a mirage built upon the opiate of easy credit. Alan Greenspan’s multiple interest rate cuts, as Dr. Rothbard conveys, is nothing new in the field of central banking:As Ehrenreich points out that's what we have seen here.… the point is that the credit expansion is not one-shot; it proceeds on and on, never giving consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in costs in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit.
For years now, we've had a solution, or at least a substitute, for low wages and unreliable jobs: easy credit. Payday loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May cover story on "The Poverty Business," BusinessWeek documented the stampede to lend money to the people who could least afford to pay the interest on it: Buy your dream home! Refinance your house! Financiamos a todos! It wasn't just the bottom-feeders that joined the unseemly frenzy to lend to the poor; big companies, such as Wells Fargo and Countrywide Financial, plunged right in. But somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were borrowing.It was indeed a recovery that never was.
When personal finances are squeezed hard enough, you have the possibility of a genuine recession. People buy less, so growth declines to the point where even the economic overclass has to sit up and take notice. We saw the beginnings of that in the last Christmas season, which even Wal-Mart survived only through perilously deep discounting.
Not that we hadn't been warned. A century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. But, like Wal-Mart, too many of our employers today haven't figured out that their cruelly low wages would eventually curtail their own growth and profits.
As Murray Rothbard explains, in The Austrian Theory of the Trade Cycle, America’s debt-driven "prosperity" is a mirage built upon the opiate of easy credit. Alan Greenspan’s multiple interest rate cuts, as Dr. Rothbard conveys, is nothing new in the field of central banking:… the point is that the credit expansion is not one-shot; it proceeds on and on, never giving consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in costs in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit.
The U.S. has suffered recessions only twice in the past quarter century and both were short and mild. There are good reasons to fear that the looming recession, if it arrives, could be worse.And the rest of the world seems to agree:
Housing is in the midst of its worst downturn since at least the 1970s. That has led to a meltdown in the mortgage market; with financial firms struggling to make sense of their losses, they are making it harder for even credit-worthy borrowers to get loans. The combination of heavy debt loads, still-high energy and food prices and a weakening job market has households tightening their belts. Consumer spending, long a bulwark of the economy, is faltering.
That sets the stage for something more severe than the 2001 recession, which spanned just eight months, says Merrill Lynch economist David Rosenberg. During that slump, in which gross domestic product declined a slight 0.4%, quarterly consumer spending slowed but never contracted -- the first time that happened during a recession since the 1940s.
Fears that the United States is in a recession reverberated around the world on Monday, sending stock markets from Frankfurt to Bombay into a tailspin and puncturing the hopes of many investors that Europe and Asia will be able to sidestep an American downturn.As we have mentioned here before many in the US never saw the last recovery and this time it wasn't just those at the bottom - the middle shared the pain and that continues.
An unusually large share of workers have been out a job for more than six months even as overall unemployment has remained low, a little-noted weakness in the labor market that analysts said threatens to intensify the impact of the unfolding economic downturn.Of course both the Bush administration and the congress are talking about stimulus plans to "jump start" the economy. These stimulus plans include job training. The question is what are you going to train people to do? In the late 90's people trained to be software engineers and IS technicians. Jobs were shipped off to code generating sweat shops in India and many of those are now among the unemployed or working at convenience stores. Training does little good if the jobs are all overseas.
In November, nearly 1.4 million people -- almost one in five of those unemployed -- had been jobless for at least 27 weeks, the juncture when unemployment insurance benefits end for most recipients. That is about twice the level of long-term unemployment before the 2001 recession.
The problem is ensnaring a broader swath of workers than before. Once concentrated among manufacturing workers and those with little work history, education or skills, long-term unemployment is growing most rapidly among white-collar and college-educated workers with long work experience, studies have found, making the problem difficult for policymakers to address even as it grows more urgent.
"What has happened is a polarization of the labor market. It was very strong at the very top and very strong until recently at the bottom," said Lawrence F. Katz, a labor economist at Harvard University. "But in the recent weak recovery, and now recession, demand has been very weak" for jobs in the middle.
[....]
While strong corporate profits, low inflation and record manufacturing output characterized the extended recovery that followed the 2001 recession, some economists call that period of expansion a "CEO's recovery." Real wages were mostly flat, poverty ticked upward and an unusual number of people had a hard time finding work -- a fact masked by relatively low overall unemployment rates.